Big vs Small

If you read the news with the frequency that I do, then perhaps you have been feeling discouraged lately if you are a small business owner.  Article after article after article covers small businesses fighting for survival against big box stores, franchise restaurants and giant corporations.  COVID has just accelerated some of the trends we’ve been seeing over the past few years. 

For small retail stores and independent restaurants and coffee shops, it has become increasingly difficult to compete against the huge, well-known and easily recognized chains with familiar menus at every location, that seem to be popping up at every street corner. 

And the combination of big data, supply chain flexibility and access to seemingly unending amounts of capital available to Big Business has made it harder and harder to find a niche that doesn’t get taken over by larger firms.  If you’re lucky, the big firm will “absorb” your small business, adding it to the growing list of M&A activity that lets Big Business get even bigger and bigger.  Otherwise you may see your business slowly fading away as price and time sensitive customers decide to compromise on quality and personal relationships or fail to see the value of your small business.

Entrepreneurs are the backbone of this country.  We all love hearing the stories of poor yet determined innovators starting a small business in their garage, only to make it big.  And we all like to think that we might be the next one to make it big.  Or at least big enough to have a comfortable living, create some jobs, and offer something sustainable over time.  After all, that is the “American Way.” 

If you want to get me all choked up with patriotism, then point me to small towns full of small businesses and no chains, like my favorite little place, Bayfield, WI.  Plenty of coffee shops and restaurants in the cute little downtown, not a chain to be found. 

Or, introduce me to someone who has a great business idea and is brimming with enthusiasm, thinking about getting her product or service to market.  I am a patriotic helper of aspiring and growing entrepreneurs!  I want to see individuals take on the risk, embrace their passion, put themselves out there, and then continue to push themselves to grow.  Enthusiasm! Optimism! Innovation! Creativity! That’s what the foundation of American entrepreneurship is made up of.  How can you not get all excited about that?

But the sad news is that the share of U.S. employment from small business (fewer than 100 employees) has been steadily declining over time, while the share of firms with 5,000 or more employees is growing.  According to a recent Wall Street journal article, even before the pandemic, businesses with fewer than 100 employees has been slowing declining, from 40% of all workers in 1989 in the U.S. to 33% in 2018.  The pandemic has only made that worse.  On top of that, more banks are “tightening lending standards for small firms” than since the recession in 2008.  But large public firms continue to hold onto cash and see their shares rise on the stock market.

As the WSJ article points out, reducing the number of small businesses lowers the competition for the big firms, which lowers their need to continue to innovate or even to offer higher pay to employees.  None of this helps the country grow.  For that we need to continue to encourage our fellow entrepreneurs to keep at it and find new ways to stand up for small businesses across the country.

As a small business owner, what can you do to avoid being devoured by these large corporations?  Based on my research and experience teaching and consulting with entrepreneurs over the past 15 years, here are my top suggestions:

  1. Don’t Play the Price Game

If you own a small hardware store, don’t compete on price with the Big Box DIY stores.  If you own a technology company, don’t go after clients by promoting yourself as the low price option.  If you are developing a cool new app, don’t let your pitch be “It’s just like xxx (insert some wildly popular paid app) only cheaper.”  If you are selling components in a supply chain and competing against a Fortune 500 firm, don’t push your price as your competitive advantage.

Why not?  You will never win the price game.  First of all, if you lower your prices, those around you may respond in kind.  That kind of process ends up making every business have to pitch a price that doesn’t bring in a profit at all.  Secondly, as a small business owner, you likely don’t have the infrastructure in employees, supply chains, preferred pricing, data mining etc. that your biggest competitors have.  It’s far easier for them to shave a few pennies off a price because their sales volume might be 100x or 1000x yours.  Offering the lowest price is a losing strategy.

  1. Focus on a Unique Niche Market

So how does a small business stand out and win business?  By understanding its strengths and capabilities and matching them to a very specific audience.  You don’t want to be a machine shop that does work for anyone, you want to be the machine shop that specializes in underwater welding, or food manufacturing equipment repairs or something equally specific.  This helps ensure that you really understand the ins and outs of your customers and can become more of a consultant than a vendor to them.  In this way, you are adding value and your focus is on the relationship and not on your price.

For a store or restaurant in a small town, it helps for you to truly understand your customers and the community to be sure you are offering the right options at the right price point.  The chains have very little flexibility in pricing, menu variety, clothing brands, window displays, and so forth.  Stand out with your specially curated offerings to your unique and local customer base, not with your price. 

  1. Continually be Researching and Innovating

Even if you have established your niche and have loyal, long term customers, things are constantly changing, and you need to be alert to any changes that affect you or your customers.  How might your business be impacted post-pandemic?  Will you go back to finding potential customers at trade shows?  Or will everyone just stick to online searching?  Will your restaurant customers expect to place orders on a tablet rather than with a server? 

What are some changes in technology that are coming down the pike in your industry?  And where can you find information to keep you up to speed with how things are changing?  Even if you’re not competing directly against the giant firms, if there are huge shifts in technology in your industry, you need to be prepared to make an investment and make that shift.

As a matter of fact, it can be the small businesses that see the value of some new technology or process or service first, before the big firms.  After all, small firms are much more agile and flexible than large firms and so able to pivot as needed.  What’s that saying about turning a boat around? The big tanker ships have great size and force, but limited ability to change course?

The best way to stay on top of shifts in your own business or that of your customers is by following industry news sources.  Set up Google Alerts or use a tool like Feedly to wade through the volumes of content available online and search for keywords relative to your business. Subscribe to newsletters, blog posts and social media groups that share information about industry trends.  Or hire a market researcher (like me!) to help you find pertinent information to guide your business strategy.

  1. Band Together

I firmly believe that small businesses need to stick together as much as possible.  In our beautiful downtown Eau Claire, the local shops, restaurants and small businesses all work together through an organization to promote the whole region.  After all, the competition is not the small retail store or coffee shop a few doors down from you, it’s the giant stores and chain restaurants that are right off the interstate.  Band together to promote the whole community.  Encourage folks to take a day to explore the whole downtown. 

As a resident in your own town, seek out local stores and restaurants to support, rather than the Big Box stores and giant online providers.  Order take-out from your local restaurants rather than the franchises and chains.  Try to look for other ways to support small businesses, especially now, but even post-COVID.

But it goes beyond just the shops and restaurants.  Small B2B business owners should seek out other small business owners when making purchases or seeking services.  Or even consider collaborating to bid on larger projects together.  Small business owners who have experienced success (and failure) need to step up and take on a mentor role for the aspiring entrepreneurs in the community. 

Small businesses from every industry need to come together in CEO Peer Groups to support and learn from each other.  Groups like this allow small business owners to share challenging experiences and support each other in decision making and accountability.  Members of these groups typically feel more confident about decision making and experience revenue growth rates higher than those not in Peer Groups. 

And certainly, when it comes time to vote, be sure you know who is running for every office in your community and how they might support your small business.  Some changes need to come from local, state or federal government, so it pays to understand how these decisions are made. 

Basically, we small business owners need to operate just like a school of fish.  The fish stick together for several reasons that make sense for small businesses as well:

  • for support,
  • to increase success in foraging (finding customers?), and
  • for protection, to make it difficult for the big fish to target a single fish within the school.

So let’s continue to stick together, support our fellow small businesses, and keep moving and innovating together to find new customers and make things harder for Big Business!

What are your thoughts on standing out from your giant competitors?  Or the value of sticking together?  Let me know what you think!


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